Nepal may be 4,000 km away, but the impact of the Iraq war is ironically being felt more acutely in Nepal than in the Gulf countries where Nepalis work.

One week into the war, there is already a drop in tourist traffic, inflation, and panic buying of fuel. Now, we have to brace ourselves for long-term indirect impact on the national economy of a prolonged conflict. "A lot will depend on the duration and intensity of the war," Shanker Sharma, vice chairman of the National Planning Commission (NPC) told us. "But tourism, trade and remittances from Nepali workers abroad will be hit." All this will have a negative impact on the balance of payments, raise inflation and dampen growth

By far the biggest impact on the economy could be remittances from the estimated 300,000 Nepali workers in the Gulf who send back Rs 30 billion to Nepal every year. There are 2,000 British Gurkha soldiers deployed in Iraq. "Remittances have become the major source of revenue in recent years and the Iraq war will have an adverse impact on receipts," says economist Minendra Rijal.

Once the war ends, however, Nepal could benefit. Says Rijal: "Nepal can cash in on the increasing demand for migrant workers for post-war reconstruction." The reconstruction budget for Iraq has been estimated at up to $100 billion and Nepalis would be well-placed to benefit from their experience with working in Kuwait, Baharain and Saudi Arabia.

Back at home, a serious cash-crunch at the Nepal Oil Corporation forced the government to use the war as excuse to raise oil prices Tuesday (see Domestic Briefs). The move was greeted with street protests in Kathmandu this week."There were long lines for kerosene for the past month," says Maiya Tamrakar of Bhedasingh. "Now there is kerosene, but we can't afford it."

In Thamel, which had started seeing a trickle of tourists after the truce, there is gloom again. "We haven't yet seen a big difference in load factors to and from the Gulf yet, but if this war goes on, interna-tional travel will be hit," predicts Joy Dewan, who represents Doha-based Qatar Airways in Nepal.

Last week, the government stopped Nepali workers going to Kuwait where there are an estimated 6,000 workers. "All the Nepalis in the Gulf are safe and we haven't got any requests for evacuation so far," Foreign Secretary Madhu Raman Acharya told us. Officials also said that they were making arrangements for emergency services including evacuation. "We are waiting and watching and staying put," Tara Bhandari from Damam in Saudi Arabia told BBC Wednesday. "But we are prepared to go back home if the war gets worse."